Wednesday, May 17, 2020

Predictably Unpredictable (Part 2)

I ended the first part of this series by saying today’s fashionable, numbers-based management approach is more of a disorganizing principle than an organizing one. What I meant by this is the subject of this posting.

It’s obvious that the world organizations must deal with is extremely complex. It’s also very uncertain, and most managers and administrators hate uncertainly. Wall Street feels the same way, which is why stock prices fall any time events increase the amount of uncertainly in the world. Many people are engaged in a constant search for ways to remove — or at least sharply diminish —this inconvenient unpredictability. Governments also dislike what they can’t predict or control, so you can add thousands of government employees to the list of those trying to make the world more predictable.

That’s an enormous amount of talent and effort — and there are still all the academics to add to the list. Surely by now we should be seeing some positive results. the world should be more stable, more predictable and much more under people’s control. Businesses should have most of the tools they need to plan ahead in confidence. The irritating discovery that the business that did all the right things has failed, and some upstart that flouted sound business practice has become an overnight success, should be a thing of the past.

In the world I live in, none of this has happened. If anything, events seem more unpredictable. If anyone’s in control, they’ve got a warped sense of humor. From a more limited, organizational perspective, the markets are as volatile as ever and little or none of the effort spent on careful predictions and planning has been of any use at all.

Over-optimism Rules

Probability is about odds, and general opinions and rules of thumb about the working of odds are almost universally incorrect. Worse, they nearly always err on the side of optimism: people wildly over-estimate the odds in favor of what they want and under-estimate the odds against. Organizations do this all the time: it's called budgeting.

It’s fatally easy to assume that you can identify the true causes of success, even after the event. What happens when success arrives entirely at random? Given enough examples, you would find most organizations neither do especially well, nor especially badly. A few suffer anything from serious loss to total disaster. A few find something between major success and an overwhelming triumph. Does this sound like reality? It should. It’s all produced by nothing more than the laws of chance and probability.

Would copying the most successful “winners” increase your own chances of success? No. What they did happened to be successful that time, but may never work so well again. Author and economist Paul Ormerod, in his book Why Most Things Fail: Evolution, Extinction and Economics, shows that the only choice likely to work is to be as different as possible from your competitors. But doing this consistently would require that you have inside information on every competitor’s plans — something that’s illegal in nearly all countries, as well as impossible to obtain.

Messy, Unpredictable Reality

Organizations are not predictable machines. The outcome of just about any significant activity cannot be known in advance. Even if you improve the odds, you will not remove the likelihood of failure altogether. The best anyone can do is to watch events intently, ready to change direction the moment some assumed result or outcome doesn't materialize.

As organizations collect and analyze more and more data, they’re chasing a mirage. How much of that data is accurate, useful information? How much is random “noise?” Can you ever tell? It seems inevitable that all this activity will be wasted. Mathematicians have proved, conclusively, that far less complex and uncertain problems than running a business cannot be solved by any possible technique of analysis. Yet the search for a simple, accurate and easily calculated method of predicting the correct business decision goes on; and companies pay millions to consulting firms in the hope of finding it.

Information Overload

Today's reality is that top executives are frequently overwhelmed by information, much of it barely digested or understood. In an understandable attempt to cope with a deluge of data, only matched in intensity by constant demands for speed, they do the best they can — often relying on techniques (and people) that claim to be able to distill what truly matters from the roar of background noise. It's amazing, not that this often breaks down, but that it works at all.

The story goes that, during the Cold War, the CIA was infuriated to find the Soviets knew just about everything there was to know about some of the most secret defense facilities in the United States — all the most highly classified programs and projects. No matter how much security was increased, the information still leaked out.

Then someone had a brainwave. Instead of trying to limit information about these sites, they poured it out. Press releases, interviews with key staff, public awareness materials, lengthy reports on non-classified topics. Within a few months, the Soviet analysts were overwhelmed. They had so much data, they couldn’t work out what mattered and what didn’t. To the great satisfaction of the CIA, the information that truly mattered was completely lost in the mass of irrelevant data.

Too much data is today’s problem, not too little. What matters isn’t easily visible amongst all the dross that’s irrelevant. You can get the arithmetic right, but you can’t cram more into one person’s head than it can take. Nor can you make people “think” like machines. Numbers, in theory, can contain a great deal of information; but there’s too much already. Compressing more into poorly-grasped statistical formats won’t help. It disorganizes people by overwhelming their ability to handle all the input.

Leadership is not a science. It relies on the human brain coping with situations that are naturally (and inescapably) uncertain. Leading any part of an organization is like life itself: a continual process of adapting as well as possible to events that are far more often dangerous to survival than beneficial. It takes time, care, reflection — and as much wisdom as the leader can muster.

You can’t get those on one side of a sheet of paper — nor into a spreadsheet on your laptop.

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Mike L. said...

"What if, in other words, some younger quantitative sociologist repudiates our Faustian bargain with statistics, the
bargain which gave us instant, voluminous, and easy results - but results that often were mischievous or meaningless
when they were not both?"

Otis Dudley Duncan. 1992. What if? In Symposium: The American Occupational Structure:
Reflections after Twenty-five Years. Contemporary Sociology, 21:5, 667-8.

1:14 PM  

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